Social Innovations

The BOP Beckons

How do you go
about delivering
reliable energy to
poor, off-the-grid
villages in India?
If you’re an established
energy company, you don’t.

Enter Decentralised Energy Systems (DESI Power), a young,
India-based power company that built
a biomass gasification plant that runs
on inexpensive agricultural residues
such as ipomoea, a weed plentiful
throughout the Indian countryside.
DESI’s power plant in the village of
Baharbari provides a cheap, clean
source of electricity that the village
uses to meet local microenterprises’
and agricultural laborers’ needs, such
as pumping water and charging batteries.
Indeed, the driving idea behind
DESI Power is to make a profit from
designs that fall outside the standard
power generation model, and in
doing so to create worthwhile jobs
and economic growth in places that
the government has all but forgotten.
DESI does make a profit: The company
generates a 10 percent return on
its investment by building, owning,
and operating the power plants before
eventually turning them over to local
power producers.

But DESI Power is the exception.
Though there is literally a world of
opportunities for firms to meet basic
demand for housing, water, energy,
medical insurance, legal and financial
services, and much more in developing
markets, few are doing so. According
to a recent Ashoka report, large
companies have tapped only about 20
percent of new markets. Corporations
often draw workers from these populations,
but rarely do they flip the
equation and develop products, services,
and brands that target the poor’s
basic social and infrastructure needs.

Why is serious investment in bottom-
of-the-pyramid (BOP) markets
the exception rather than the rule?
What keeps companies from building
lines of business by meeting the needs
of the poor in developing markets?

First, and perhaps most fundamentally,
these new markets look
awfully different from the standardized
markets of the West. Even firms
that recognize opportunities in developing
markets sense that going about
business as usual in these places is like
trying to fit a square peg into a decidedly
round hole.

Weak infrastructure creates challenges
to product distribution that
range from uncertain to insurmountable.
Some Indian companies have
gone so far as to build their own
roads, power systems, and phone networks
– powerful signals that developing
markets are worth the hassle, but
not exactly a siren call to entice eager
new entrants. Income – particularly
the disposable kind – is low, and cultural
differences make certain products
or services unsuitable. For example,
because the Koran prohibits
interest, paid or received, banks pursuing
Muslim customers need alternatives
to loans.

This leads us to the second barrier:
Most companies don’t know how to
package products for poor people,
and they don’t know what products
and services the poor prefer. Too
often, bottom-of-the-pyramid business
plans simply repackage consumer
goods popular in developed
markets to fit the price range of
emerging market customers. Retail-focused
companies such as Unilever
have, indeed, earned new customers
with this strategy: Unilever’s Lux
soap, Sunsilk shampoo, and Lipton tea
are becoming household staples in
India and South Africa. But consumer
goods are, in many cases, peripheral
to a more substantial opportunity
with a wider potential customer base
in developing markets – namely, meeting
the basic demand for housing,
clean water, medical insurance, and
legal and financial services that fit
local needs, customs, and income.

A third barrier, ironically, is that
business investments in social and
infrastructure needs often face the
highest regulatory hurdles. This is a
byproduct of how policymakers and
nonprofits often approach the needs
of the poor, which are mostly handled
within the realm of social or government
work. Charity and government
subsidies are certainly important stopgap measures to
meet the poor’s social and infrastructure
needs, particularly when sudden
needs arise. But economists often talk
about the way these stopgaps crowd
out private investment if they’re
adopted as long-term measures.

The result is that governments and
charities – purposefully or unwittingly
– deny the poor the chance to make
basic choices about their own needs
and well-being. When the poor are
enclosed in a bubble of protective policy,
the links that provide accountability
in the marketplace between consumers
and suppliers disappear.

The Grassroots Solution

But there is another way to look at
developing markets. Rather than starting
with the status quo in rich countries
and measuring business opportunities
in poor ones by gauging what it
would take to recreate that environment,
businesses can take a step back
and do what entrepreneurs have
always done: ask questions like “What
do people need?” “Why don’t they
have it?” and “How do they get it?”

That approach is the essence of
grassroots design. Though it requires
more initial thought and creativity, it
makes things far simpler in the long
run. Businesses that start with a grassroots
design process end up with
products and services that meet real,
as opposed to perceived, needs; integrate
local materials and processes;
and reflect the culture and aesthetic
of their customers. Of course, a company
that embraces grassroots design
does not gain the benefits of simply
importing its existing business model
and product line. But mass markets
are fragmenting everywhere, and
firms that learn to design up from
local circumstances will compete
better wherever they operate.

Most firms that wholeheartedly
embrace grassroots design are small,
but they have striking stories to tell.
Natura Fibretech bases its booming
business on Coirply, an inexpensive
alternative to wood that it developed
from coconut fiber, which grows
throughout India. The Bangalorebased
company is growing 40 percent
per year because it redesigned this
local resource – which for generations
has been used to make rope and doormats
– into a product significantly
cheaper than plywood but comparable
in quality to the best hardwoods
on the market.

Natura creates thousands of high-paying
local jobs, most of them filled
by women, by selling local enterprises
the technology to harvest coconut
fiber. The company then buys this
material back and manufactures it for
commercial use in everything from
India’s booming housing market to
durable bedsprings for affordable,
comfortable mattresses. As Natura’s
business expands in India and abroad,
the company will be even better positioned
to offer low-cost, high-quality
products to poor customers.

Of course, grassroots design
doesn’t always produce radically
new, locally sourced products. In
some instances, it simply yields new
processes that fit existing products to
local markets. Mexican food services
company Cuadritos, for instance, has
developed a proprietary chemical
engineering process that creates safe,
nutritious, flavorful food products out
of the 17,000 tons of expired yogurt,
soy milk, vegetables, and other foods
that Mexicans throw out daily. The
company starts by collecting waste
from large-scale food producers such
as Dannon and ends up with proteinrich
cookies, instant soups, yogurt
drinks, and soy powder at affordable
prices. (Packages designed to feed
one family for a week cost just $3.20.)

But how can big companies integrate
grassroots design? Often, creative
partnerships provide the best
opportunities. The resources and
know-how of a large corporation,
together with the creative thinking
and practical experience of those in
the social sector, can quickly meet a
specific need, something that has
eluded aid organizations and government
agencies for years.

Take CEMEX, one of the top
three global cement manufacturers,
which partnered with a local social
service organization to better serve
the housing needs of Mexico’s low-income
population. CEMEX did not
need to develop new products. It
needed new financing, delivery, and
service arrangements that would generate
cost-efficient sales to groups
(not just to individuals); ensure the
timely delivery of materials; and provide
technical advice to do-it-yourselfers.
CEMEX now serves a new
market representing potential sales of
$500 million to $600 million per year.
In less than 10 years, this CEMEX initiative
has acquired a larger client base
than all subsidized housing programs
in Mexico combined.

Everyone benefits from businesses
designed on a grassroots level. Businesses
gain access to pertinent market
research. Social service providers that
partner with businesses gain insight
into how the corporation relates to
its customers, a share of revenues,
and the crucial feedback link that
markets offer. Local entrepreneurs
gain an outlet for their ideas. And
poor customers are presented with a
rare prospect: a product that meets
their basic needs, tailored to their
lifestyle and dependent on their own
initiative and investment.

JOSHUA WEISSBURG is a project associate at the Aspen Institute and
an adviser to Renew, a consulting firm that provides management expertise
and investment research to emerging market firms in the renewable
energy, communications, health, finance, and education sectors.